Choice Hotels International, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Choice Hotels International's fourth quarter and full year 2022 earnings call. At this time, all lines are in listen-only mode. I will now turn the conference over to Ali Summers, Investor Relations Senior Director for Choice Hotels.

Good morning and thank you for joining us today. Before we begin, we'd like to remind you that during this conference call, certain predictive or forward-looking statements will be used to assist you in understanding the company and its results. Actual results may differ materially from those indicated in forward-looking statements. and you should consult the company's forms in Q10K and other SEC filings for information about important risk factors affecting the company that you should consider. These forward-looking statements speak as of today's date and we undertake no obligation to publicly update them to reflect subsequent events or circumstances. you can find the reconciliation of our non-GAAP financial measures referred to in our remarks as part of our fourth quarter and full year 2022 earnings press release, which is posted on our website at choicehotels.com under the investor relations section. This morning, Pat Pacius, our President and Chief Executive Officer, and Don Dragicek, our Chief Financial Officer, will speak to our fourth quarter and full year operating results and financial performance. Following Pat and Dom's remarks, we'll be glad to take your questions. And with that, I'll turn the call over to Pat.

Thanks, Allie, and good morning, everyone. We appreciate you joining us. 2022 was a landmark year for Choice Hotels. We delivered step function growth, while successfully closing the most significant transaction in our company's history and further accelerated our long-term strategic plan. Our distinct growth strategy drove our full year 2022 adjusted EBITDA 19% higher than the prior year and 28% higher than full year 2019. We expect this momentum to carry into 2023 and beyond as we continue to grow our brand portfolio with hotels that generate higher royalties per unit, and we leverage the new capabilities we have built to improve the profitability of each franchise. I'm pleased to report that we expect to grow our full year 2023 adjusted EBITDA by approximately 11% at the midpoint of our guidance year over year, representing an approximately 42% increase compared to 2019. Clearly, we have transformed Choice Hotels into a company that is in a stronger competitive position and has significant long-term growth potential. Our selective unit growth strategy is delivering results and improving the attractiveness of our brands. Over the past two years, the new hotels we have added to our portfolio have generated on average twice the revenue as hotels leaving it. This is a trend we expect to continue. In 2022, we grew the system size across our 20 brands in the higher revenue segments by approximately 10% year over year and saw an outsized increase in royalties, driven by this growth. In addition to our traditional strength in the upper mid-scale and mid-scale segments, the company has well-established brands with significant growth potential in the two segments with the highest developer and guest demand, extended stay, and upscale. These segments are more accretive to our earnings, and they have been and will continue to be a key driver of our earnings algorithm and future growth. We are also delivering for our franchisees. For three straight years, we have outperformed the industry in REVPAR growth due to the significant investments we've made in our business, creating a best-in-class franchisee success system. The award-winning pricing optimization and merchandising tools we continued to enhance last year, are contributing to our brand's outperformance, allowing our owners to effectively capture additional market share, drive top-line revenue, and reach their target customers. Existing owners recognize the increasing value of our brands and choose to remain with choice, as seen in our industry-leading voluntary franchisee retention rate. 2022 also marked a record year for franchise renewal and relicensing contracts. And half of the franchise agreements awarded last year were with existing or returning owners. At the same time, we continue to enhance the value proposition that we deliver to our guests. I'm pleased to share that just yesterday, we announced a multi-year agreement with Wells Fargo and MasterCard to launch a new co-branded credit card program this spring. The new card portfolio will add value for our guests through enhanced rewards and benefits, as well as faster and easier ways to earn even more points beyond hotel stays, all of which will help to further grow our Choice Privileges membership and deepen member engagement and loyalty. We expect this partnership to drive incremental revenue significantly above our existing arrangement and provide an additional tailwind for our platform business segment in 2023 and beyond. We also recently delivered another exciting benefit to our loyal guests. Due to the expertise of our Radisson Americas portfolio integration team, our loyalty members can now seamlessly exchange points between our two award-winning loyalty programs, Choice Privileges and Radisson Rewards Americas. The acquisition of the Radisson Americas brands in August of last year accelerated our strategy of growing our hotel mix with higher revenue producing hotels and added an incremental $18 million to our 2022 adjusted EBITDA in just four and a half months. exceeding our previously issued guidance. The ability to achieve these initial results in such a short time is due to the expertise of our in-house integration team. We have a proven track record of successful integrations demonstrated by our acquisition of the WoodSpring Suites brand and the expansion of our partnerships with companies like Penn National Gaming, with both adding significant value to our business. Our integration and operations teams have applied their proficiency to the onboarding of Radisson Americas and have identified additional synergy opportunities beyond our initial projections. And thanks to their exceptional efforts, we are well ahead of our timeline to achieve the synergy target. Given this impressive progress, we now project the Radisson Americas business unit to contribute over $60 million of adjusted EBITDA in 2023 and exceed our previously disclosed recurring adjusted EBITDA target for 2024 and beyond. We believe that Radisson America's portfolio, combined with choices scale, network of franchisee relationships, and our best in class digital platforms and tools, will fuel significant incremental growth over the long term that will continue to pay off for our hotel owners and shareholders alike. In 2022, our strategy enabled us to achieve remarkable financial results, invest in a strategic acquisition, accelerate our capital recycling progress, and return approximately $435 million to shareholders through our share repurchase program, representing 7% of the average shares outstanding. These exceptional results were possible thanks to the hard work of our dedicated associates across the company, including the Radisson America team, and the great partnership we have with our franchise owners in driving success for the future. Adding to our optimism is the sequential acceleration in quarter-over-quarter REVPAR growth we drove throughout 2022. For comparative purposes, throughout our remarks, we'll provide last year's REVPAR performance results, excluding the impact of the Radisson Americas acquisition. Our fourth quarter REVPAR growth was exceptional, with REVPAR increasing 20.4% from the same quarter of 2019 and marking the strongest quarter of the year. What's most impressive is that we drove this performance through both rate and occupancy gains. In fact, in the fourth quarter, we outperformed the industry and our respective industry change scales in occupancy growth across all days of the week. Despite the historically softer fourth quarter for leisure travel, we observed our guests extending their trips into shoulder days of the weekend. In the fourth quarter alone, on Sundays and Thursdays, we drove nearly four percentage points of occupancy growth compared to 2019. The trend of leisure travel demand spreading more evenly throughout the months of the year and into shoulder days of the weekend benefits our brands and allows us to attract and capture an even larger share of an expanding leisure demand segment. And we expect our momentum to continue into the first quarter. Our January REVPAR, inclusive of Radisson Americas, increased by over 6% year over year. At the same time, we continue to take share from the competition, driving REVPAR index gains as compared to 2019. Our strategy and best-in-class business delivery engine have positioned us for stronger profitability in the future with significant runway ahead of us. The results we achieved in 2022 confirm the effectiveness of our thoughtful, deliberate approach and give us high confidence in our ability to continue to drive exceptional results in the coming years. We have surpassed 2019 REVPAR levels for six consecutive quarters because of the strategic decisions and investments we have made to position ourselves to further increase our share of travel demand. We are confident that the changes we are observing in leisure and business travel behavior that favor our brands will enable us to maximize growth opportunities well into the future. As discussed on our prior calls, we've been highlighting consumer and industry trends that are driving a significant uptick in travel demand. And we've been making deliberate investments to reap the benefits from them. Specifically, we are capitalizing on long-term fundamentals such as remote work, retirements, rising wages, and the reshoring of American manufacturing. We see these trends as strong tailwinds for our company's long-term growth. Importantly, CHOICE's resilient business model has historically delivered stable returns throughout both expanding and contracting economic cycles. Looking ahead, our optimism is further reinforced by the strengthening of our business transient and group segments. In 2022, we drove year-over-year increases in our business travel bookings. At the same time, the revenue generated from our business managed accounts more than doubled when compared to 2019. We expect business travel in our key industry verticals to increase, fueled by the onshoring of the U.S. supply chain and significant nationwide investments in infrastructure. Likewise, we anticipate additional tailwinds from business travelers in sectors such as healthcare, technology, and professional services, especially in the context of the Radisson Americas acquisition and the growth in our brand portfolio mix in segments and hotels that generate higher royalties per unit. Our impressive results demonstrate that the deliberate decisions and strategic investments we have made in our brand portfolio, value proposition, platform capabilities, and other franchisee tools are paying off. I will now provide a brief update on our key segments. First, consistent with our strategy of increasing unit growth in higher revenue segments, we continue to strengthen our upscale portfolio of brands with the Radisson Americas acquisition, further cementing this strength. In 2022, our domestic upscale units grew by nearly 30% year over year. We are pleased with CHOICE's upscale brands, Cambria Hotels and Ascend Hotel Collection, outperforming the segment's REBPAR growth by nearly 10 percentage points in 2022 compared to 2019. The Cambria brand had one of its best years ever. The brand grew by 14% year over year, reaching 65 units with an additional 65 domestic properties in the pipeline, 19 of which are projects under active construction as of the end of December. At the same time, we awarded nearly 30 domestic contracts in 2022, doubling the number of the brand's franchise agreements sold year over year. 2023 is shaping up to be another great year for Cambria, as we expect 10 additional hotels to open across the country. In addition, we expect that the Radisson Americas acquisition will enable us to build on our momentum in the upscale segment, accelerating the growth of our Cambria NSN brands, and at the same time, allowing us to expand the Radisson portfolio. We also further invested in the extended stay segment. which continues to be a significant driver of our pipeline and RevPAR growth. Last year's strong developer interest for our extended stay brands marked a record year for executed contracts. And we expanded our domestic pipeline to nearly 500 hotels, a 34% increase year over year. This pipeline now represents half of the total domestic pipeline and will continue to serve as a growth engine for years to come. Our newest extended stay brand, Everhome Suites, which opened its first hotel last year, is on the cusp of major growth, gaining impressive traction across the development community with over 40 domestic franchise agreements awarded last year and 60 projects already in the pipeline. Our investments in the WoodSpring Suites brand's marketing and distribution capabilities enabled us to achieve REVPAR growth of over 33% in the fourth quarter of 2022, compared to the same period of 2019, driven by increases in both occupancy and rate. Last year alone, the WoodSpring Suites brand pipeline reached over 310 domestic properties, a 47% increase year over year, and we expect the brand's openings this year to exceed 2022 levels. Overall, we remain very optimistic about our extended stay segment growth and now expect the number of our extended stay units to increase at an average annual growth rate of more than 15% over the next five years. We also continue to strengthen our core portfolio of brands. Within this category, our upper mid-scale segment grew by 24% year over year, reaching more than 2,200 domestic hotels in 2022 alone. The Comfort brand has now registered 12 straight quarters of unit growth year over year since its successful refresh and consumer confidence in our updated product has continued to drive the brand's REVPAR index gains versus its local competitors. In addition to our performance, I want to recognize the efforts we are making to achieve our ESG commitments, which, like our strategy, are long-term focused. Our fully dedicated franchise development and services team continues to derive diverse ownership of choice franchise hotels among underrepresented and minority owners. The team awarded a record number of franchise contracts in 2022, bringing the total agreements executed to 345 since the program launched. I'm especially pleased to note that 80% of those agreements awarded to underrepresented and minority owners last year were awarded to women entrepreneurs. To take our sustainability efforts to the next level, we continue to onboard early adopters into our energy collection and measurement program. We are rolling out this program to help every one of our franchisees reduce their operating costs and protect the environment by tracking utilities usage at the hotel level and identifying opportunities for additional energy, water and waste conservation. In addition, we have recently joined the Sustainable Hospitality Alliance to help drive progress across our industry toward a more sustainable future. Further details regarding our efforts to live up to our longstanding commitments to diversity and sustainability will be outlined in our latest annual ESG report that will be released this spring. In closing, I want to emphasize that Choice Hotels is in a very strong position to further capitalize on outsized growth opportunities. Thanks to our effective strategic investments, and our distinct strategy of growing our brand portfolio with hotels that generate higher royalties per unit, we have significantly strengthened our earnings power and competitive position. We look forward to fully integrating Radisson Americas into the choice franchise success system and to accelerating the growth of these brands by leveraging choices scale, network of owner and franchise relationships, and best-in-class digital platforms. As we begin this new year, we are confident that we are well-positioned to build on the success achieved in 2022 to further capitalize on growth opportunities we see in 2023 and beyond. With that, I'll hand it over to our CFO. Dom?